NOTE 11—FAIR VALUE MEASUREMENTS AND DERIVATIVES

The Company’s fair value measurements consist of (a) financial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually) and (b) all non-financial assets and liabilities that are recognized or disclosed at fair value on a non-recurring basis.

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:

The Company’s long-term investments and interest rate swap agreements are measured at fair value on a recurring basis. The information in the following paragraphs and tables primarily addresses matters relative to these assets and liabilities.

Cash equivalents:

Cash equivalents, other than credit card receivables, include highly liquid investments with an original maturity of three months or less at acquisition. The Company carries these investments at fair value. As a result, the Company has determined that its cash equivalents in their entirety are classified as a Level 1 measure within the fair value hierarchy.

Collateral investments:

Collateral investments include monies on deposit that are restricted. The Company carries these investments at fair value. As a result, the Company has determined that its collateral investments are classified as a Level 1 measure within the fair value hierarchy.

Deferred compensation assets:

Deferred compensation assets include variable life insurance policies held in a Rabbi Trust. The Company values these policies using observable market data. The inputs used to value the variable life insurance policy fall within Level 2 of the fair value hierarchy.

Derivative asset:

The Company has two interest rate swaps designated as cash flow hedges on $100.0 million of the Company’s Senior Secured Term Loan facility that expires in October 2018. The Company values these swaps using observable market data to discount projected cash flows and for credit risk adjustments. The inputs used to value derivatives fall within Level 2 of the fair value hierarchy.

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis:

(dollar amounts in thousands)	Fair Value at		Fair Value Measurements Using Inputs Considered as
Description	May 2, 2015		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	42,166	$	42,166	$	—	$	—
Collateral investments (1)	21,612		21,612		—		—
Deferred compensation assets (1)	4,488		—		4,488		—
Other liabilities:
Derivative liability (2)	393		—		393		—

(dollar amounts in thousands)	Fair Value at		Fair Value Measurements Using Inputs Considered as
Description	January 31, 2015		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	38,044	$	38,044	$	—	$	—
Collateral investments (1)	21,611		21,611		—		—
Deferred compensation assets (1)	4,382		—		4,382		—
Other liabilities:
Derivative liability(2)	625		—		625		—

(1)

Included in other long-term assets.

(2)

Included in other long-term liabilities.

The following represents the impact of fair value accounting for the Company’s derivative asset on its consolidated financial statements:

(dollar amounts in thousands)	Amount of Gain/(Loss) in Other Comprehensive Income/(Loss) (Effective Portion)			Earnings Statement Classification	Amount of Loss Recognized in Earnings (Effective Portion) (a)
Thirteen weeks ended May 2, 2015	$	146		Interest expense	$	(151	)
Thirteen weeks ended May 3, 2014	$	(38	)	Interest expense	$	(151	)

(a)

Represents the effective portion of the loss reclassified from accumulated other comprehensive income (loss).

The fair value of the derivative was $0.4 million and $0.6 payable as of May 2, 2015 and January 31, 2015, respectively. Of the $0.2 million decrease in the fair value during the thirteen weeks ended May 2, 2015, an immaterial portion was recorded to accumulated other comprehensive income (loss) on the consolidated balance sheet.

Non-financial assets measured at fair value on a non-recurring basis:

Certain assets are measured at fair value on a non-recurring basis, that is, the assets are subject to fair value adjustments in certain circumstances such as when there is evidence of impairment. These measures of fair value, and related inputs, are considered level 2 or 3 measures under the fair value hierarchy. Measurements of assets held and used are discussed in Note 12, “Impairments”.